Homeowner protection before Brown

SACRAMENTO (AP) — California would become the first state to write into law much of the national mortgage settlement negotiated this year with the nation's top five banks, and expand it to all lenders, under wide-ranging legislation state lawmakers approved Monday.

Majority Democrats sent the homeowner protection package to Gov. Jerry Brown despite opposition from business and lending organizations and most Republican legislators.

The Assembly approved the legislation on a 53-25 vote, and the Senate followed by voting 25-13.

The legislation would require large lenders to provide a single point of contact for homeowners who want to discuss loan modifications. It would prohibit lenders from foreclosing while the lenders consider homeowners' request for alternatives to foreclosure. And it would let California homeowners sue lenders to stop foreclosures or seek monetary damages if the lender violates state law.

The protections would benefit all California homeowners, not just those whose mortgages are with the five banks that signed the national settlement in February. And many of the restrictions would become permanent, while those in the nationwide agreement will end after five years.

It applies to all owner-occupied residences, but not commercial or rental properties.

Jose Vega drove 70 miles to Sacramento with his two young children to lobby lawmakers to pass the legislation after he spent three years battling to keep his home in the San Francisco-area city of Pittsburg.

In November 2009, he said, he found a trustee sale notice posted on his door 16 days after he was placed in a loan modification program. He was put into another modification program in the spring of 2010, only to have the bank again begin foreclosure proceedings.

Vega, 52, eventually kept his home after filing for bankruptcy and getting help from the office of Democratic U.S. Sen. Dianne Feinstein. Now he and his family owe $466,000 — including the bank's legal fees — on a home he said is worth about $200,000.

"I'm not asking for a handout. All I'm saying is, you created this mess, let's work something out," said Vega, a member of the Alliance of Californians for Community Empowerment. "Hopefully, California will lead the way so other states will follow."

Attorney General Kamala Harris said an estimated 700,000 California homeowners now are facing foreclosure, up from 500,000 in previous projections.

"They will now have a system that will offer them transparency and fairness," Harris said after the vote.

Harris said the California legislation is the next step in reforming the industry, even as a special task force of California Department of Justice prosecutors continues investigating mortgage abuses.

Key portions of her original proposal to write the settlement into state law were stalled by opposition from some of her fellow Democrats in the Legislature, until the right to sue banks and other measures were significantly narrowed.

"This legislation can be the catalyst not only for a recovery of California's real estate market, but a catalyst across the nation as borrowers everywhere will demand the same protections given to California borrowers, the same protections given to our families," said Democratic Assemblyman Mike Feuer, a member of the conference committee that negotiated the bill. "Those protections boil down to this: They ought to be treated fairly, they ought to be treated consistently."

Lenders' organizations joined by the California Chamber of Commerce said in a letter to lawmakers Friday that the final legislation is an improvement, though they still fear it will "encourage frivolous litigation" by borrowers who cannot realistically afford to stay in their homes.

The lending industry cited a study it commissioned by Beacon Economics, a Los Angeles-based research firm. It echoes industry arguments that letting homeowners sue their lenders, even in limited circumstances, will delay foreclosures and increase lenders' costs, potentially harming the shaky housing recovery and making it more difficult and costly to obtain mortgages.

The legislation can't address what lenders and opposing lawmakers said is the underlying problem: too many borrowers can't afford their payments.

"It's a mistake that will hurt this economy for years to come," said Republican Sen. Sam Blakeslee, a member of the conference committee.

Supporters of the bill say it still takes important steps.

"The point is ... not to launch an avalanche of lawsuits. What it's really about is having some meaningful accountability to ensure that servicers follow the rules," said Paul Leonard, director of the California office of the Center for Responsible Lending, a consumer group.

Previous efforts have repeatedly failed to clear the Legislature. Leonard said the national mortgage settlement and Harris' involvement are likely to make the difference this year.

Democratic Sen. Noreen Evans, who co-chaired the conference committee that negotiated the bill, said Brown's administration worked with Democrats on the legislation and has given every indication he would sign it into law. However, Brown declined to comment as he left the office of Senate President Pro Tem Darrell Steinberg moments before the vote.

The governor's office later issued a statement praising the legislation for establishing "important consumer protections that are long overdue" but stopped short of saying he will sign the bill.

The law would not take effect until Jan. 1, though Evans and Harris said they expect lenders would begin following the new rules immediately even if the penalties don't yet apply.